The Quality of Management Forecasts of Capital Expenditures and Store Openings

39 Pages Posted: 17 Sep 2004

See all articles by Christopher L. Jones

Christopher L. Jones

George Washington University - Department of Accountancy

Cathy J. Cole

Securities and Exchange Commission (SEC); Virginia Polytechnic Institute and State University

Date Written: September 15, 2004

Abstract

We study the quality of retailers' forecasts of planned capital expenditures and store openings. We examine five desirable attributes of management forecast quality: unbiasedness, efficiency, explanatory power, incremental informativeness, and sufficient-statistic efficiency (meaning that the forecasts summarize all available information). We find forecasts are unbiased, have high explanatory power and have substantial incremental informativeness relative to alternative historical information. In our in sample tests, we find evidence of inefficiency and sufficient statistic inefficiency, but our out of sample tests find no significant evidence of either. That suggests that it is difficult to improve on these management forecasts. Overall the evidence indicates that these forecasts are of high quality. These findings contribute to our understanding of the general quality of MD&A information, management forecasts in general, and the reasons why MD&A disclosures are associated with future accounting results and reduced cost of capital. The findings also provide some support for recent arguments that encourage requiring information on the ex post accuracy of estimates.

Suggested Citation

Jones, Christopher L. and Cole, Cathy J., The Quality of Management Forecasts of Capital Expenditures and Store Openings (September 15, 2004). Available at SSRN: https://ssrn.com/abstract=591968 or http://dx.doi.org/10.2139/ssrn.591968

Christopher L. Jones (Contact Author)

George Washington University - Department of Accountancy ( email )

School of Business and Public Management
Washington, DC 20052
United States
202-994-3529 (Phone)
202-994-5164 (Fax)

Cathy J. Cole

Securities and Exchange Commission (SEC) ( email )

450 Fifth Street, NW
Washington, DC 20549-1105
United States

Virginia Polytechnic Institute and State University

250 Drillfield Drive
Blacksburg, VA 24061
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
212
Abstract Views
1,560
Rank
268,620
PlumX Metrics